WTI Eases Back From Above USD 72.00

WTI crude oil briefly pushed back above USD 72.00 on Friday after not as high as feared US inflation triggered risk-on.

Oil prices have since eased back but remained on course for their best week since August. Oil prices remained uneven on Friday, though have for the most part traded on the front foot and are on course for their best weekly performance since August.

Front-month WTI futures began the session in the low-USD 70.00s after profit-taking weighed on the price on Thursday but temporarily surpassed USD 72.00 at one point earlier in the session.

At the time, a not as bad as feared US inflation report for November spurred some risk-on sentiment across markets which had clearly been positioning for an upside surprise on expectations.

This favoured crude oil prices at the time. In the subsequent hours, prices have ebbed lower again and currently trade in the mid-USD 71.00s, with gains on the day of still more than USD 1.0.

At current levels, oil prices have eroded between 50-60% of their post-Omicron emergence decline. This recovery has been aided by growing confidence in the notion that the new Omicron variant is set to be far milder than past variants like delta.

That residual risk is a referral to the potential economically harmful reaction to Omicron that some governments have taken. Travel restrictions and work-from-home directives are a direct threat to fuel demand and one that markets are not taking lightly after the UK upped its COVID-19 restrictions by implementing Covid-19 Plan B earlier in the week.

This seems to be what is preventing oil from emulating the US stock market and recovering back to its pre-Omicron levels. Early data suggests the virus is significantly more transmissible than other variants (a Japanese study put it as 4.2 times more transmissible than delta, so global infection rates are bound to surge.

Traders will be nervously watching hospitalization rates, which have so far not shown signs of a significant rise in South Africa.